Values in Financial Markets by Maria José Pereira

To incorporate values back into finance, we should look at both the financial system and the behaviour of those working within the system. Our current financial system is driven by the maximization of returns, in order to increase monetary wealth, in part to permit consumption. As a result, with the advance of technology and financial engineering, financial activity has emphasized trading and speculation, so that often it is referred to as ‘casino finance’. Long-term investment is relegated to secondary importance. Yet now especially, with the need to invest in our living and urban environment in response to our environmental challenge and population growth, the need for stewardship of financial assets is required more than ever.

Robert Shiller wrote that finance should be “the science of goal architecture” to respond to a set of goals.[1] For that, we must agree as society on the purpose of finance and a set of goals that will ensure true long-term prosperity. Financial behaviour today focuses on Adam Smith’s ‘self-interest’ and the ‘invisible hand’ as justification for unregulated markets. It is believed that each agent striving for his/her individual interest will bring about wealth for all. There is no room for morals or values; markets are purely instrumental. In fact, it is believed that any concern for morals would result in ‘sacrifice’ of one’s own interests. In this respect, Friedrich Hayek said that in an extended and anonymous world, the best expression of ‘altruism’ would be the maximization of profit[2] – his interpretation of the invisible hand.

However, the discard of values is quite different from what Smith intended. Smith was a moral philosopher and believed in ‘sympathy’, a regard for the other, and ‘self-command’ or virtue. Even if one is motivated by self-interest, this implied for him limits and concern for the common good. His economic synthesis was inspired by the human desire for liberty, with wealth as an avenue to achieve this, for then one is no longer dependent on others. Our financial system is premised on the pure instrumentality of markets. However, for markets truly to function, they have to create a space of exchange for mutual benefit, and not manipulation or excessive extraction by some to the detriment of others.[3] Markets can permit reciprocity or friendship.

Values imply friendship, or consideration for the other. The Greeks called friendship “the crown of life and the school of virtue”. That was how Aristotle viewed virtue, as enabled by friendship. Both working in tandem within the marketplace ensure the smooth functioning of the state, thereby permitting human flourishing, the precondition for happiness. For Aristotle, justice was the virtue above all other virtues. And justice implied ‘proportionality’, an attribute that does not allow for abuse. To correct the abuse found in financial markets today, we need friendship and virtue, the proper motivation of behaviour. Regulation alone is insufficient.

This blog represents ideas discussed in the book A Banker Reflects on MONEY, LOVE AND VIRTUE, published in April, 2015

[1] Shiller, Robert (2012) Finance and the Good Society, Princeton University Press, p. 6

[2] ‘Hayek on Moral Values and Altruism’ at

[3] For a discussion of virtue in markets, see Bruni, Luigino and Robert Sugden (2008) “Fraternity: Why the Market Need Not Be a Morally Free Zone,” Economics and Philosophy, 24 (2008). P. 35-64